Posts in "Government bailouts"

This week I arrived in my native Nashville, Tennessee after a year away from home traveling throughout this country and abroad. One thing that hasn’t changed about one of my favorite cities in the world is that I’m still allergic to it (*pops another antihistamine*). But quite a few things have changed in just one year. Sitting down to lunch with my family today, my father started asking me questions about Netflix and informed me that there isn’t a single Blockbuster store left in Nashville. They’ve all gone out of business and closed down. In the last year I’ve seen closed down Blockbuster locations all over the United States from Michigan to Virginia, so I wasn’t too surprised to hear that Nashville is now bereft of Blockbusters.

Now when Blockbuster first started, it was an incredibly innovative business concept. Its founder imitated a lot of the distribution and franchising models that made McDonald’s an international fast food success, but applied these to video rental stores. But as we’re all seeing, a business model that created so much value and became such a stellar success beginning in the 1980s, just doesn’t create enough value to remain competitive in the 2010s. It’s been killed off by more efficient and cost-effective business models like RedBox and Netflix, which create more value for their customers by providing cheaper video rentals with a lot more convenience. Yet Blockbuster’s destruction means its employees are losing their jobs and its investors are losing their profits. Should Blockbuster get a bail out?

House Minority Leader and former Speaker Nancy Pelosi (D-CA) said on Thursday that Republicans in Congress may hold out on raising the federal debt limit until a severe downturn in the markets wakes them up. "The Republicans may need to see the markets drop 400 points," she said, and "[the markets] should encourage Republicans to raise the debt ceiling."

This way of framing the issue speaks volumes about Pelosi's concept of how an economy functions. She may well be correct that a market downturn would spur Republicans to compromise their position on the debt ceiling, as they are certainly known for caving under pressure. But what remains to be understood is precisely why Pelosi believes that American businesses rely on the government continuously going deeper and deeper into debt in order to function. She does not explain for our benefit what connection exists between capping the government's debt and spurring a dramatic market downturn.

The truth is that most businesses in America earn their profits by producing goods and services that people want to buy because it benefits every party involved. For the minority of businesses that really do depend upon continuous government spending as their core economic engine, it's unclear why anyone outside of narrow special interests should want these companies to survive. Surely the execs of the Citigroups and AIGs of the world have already gotten plenty of taxpayer money through the controversial TARP bill. The taxpayers needn't shoulder the burden of more bad business decisions.

An economy of businesses dependent upon government handouts isn't sustainable. Any companies that can't stand on their own two feet should be allowed to fail.

Q. What is your views on Greece given all the hubub? Would it be better for them to fail and hopefully rise from the ashes, all the while keeping the Euro and staying a full member of the EU or would it be better to at least reinstate the Drachma and break off from the Eurozone…? — nowahklrk, from tumblr.

A. Pardon the title pun — it’s just way too obvious to pass up.

I haven’t closely followed the situation in Greece, though I know it’s been growing steadily worse for quite a while now. Like most Americans, I am unfortunately ignorant of the politics of most other countries (but hey, at least I’m aware of it, right? And I hope to remedy that sooner than later). It’s not that I don’t care; it’s just that reading, writing, and working in American politics kind of takes all the capacity for politics which I have at this point.

That said, my main thought on the subject is that the citizens of other countries in general, but especially America (I mean, we’re not even in Europe — geez), should not be forced to pay for the Greek government’s failure and apparently rampant corruption. That’s just not our job. Daniel Mitchell at Cato makes this argument better than I can:

Politicians are masters at saying one thing and doing another. Translation: Politicians make good hypocrites.

A pertinent example is this charge to high-school graduates from a recent speech by President Barack Obama, urging the graduates to:

Take responsibility not just for your successes; take responsibility where you fall short as well.

Perhaps the 17- and 18-year-old graduates in the room believed the president really meant that. However, one would hope the more informed adults in the room had a collective gasp after Obama uttered those words.

Such comments flatly fly in the face of policies he has promoted since and prior to coming to the White House.

General Motors CEO Ed Whitacre is all over the airwaves with the company's new ad touting the fact that it paid back all of its government loan early and with interest. One problem: The loan was only a small part of the total taxpayer money dumped into the struggling car company.

PolitiFact details the problem with Whitacre's characterization of his company's status with taxpayers:

It's true that GM has squared up on its government loans, but Whitacre isn't telling the full story here.

With GM in deep trouble and hundreds of thousands of jobs in the balance, the Obama administration -- through the Troubled Asset Relief Program (TARP) -- stepped forward with tens of billions of dollars worth of assistance. As of March 31, 2010, the U.S. Treasury had committed approximately $52.4 billion to GM.

The government already has a huge stake in our economy, but soon it will be even larger.

The Treasury announced Wednesday that they will be giving GMAC 3.8 billion dollars to help bailout of the company. The Wall Street Journalreports:

The additional aid brings the total U.S. investment in GMAC to $16.3 billion and raises the government's ownership interest to 56% from the current 35%. In exchange for committing more funds, the Treasury will appoint a total of four directors to the company's board instead of two as previously planned. The company will also continue to be subject to pay limits set by U.S. pay czar Kenneth Feinberg. The additional aid is expected to help the firm absorb additional losses associated with mortgages.